Financial Planning for Doctors

Three Phases of Income & Wealth Building

The habits needed for successful money management differ at various stages of your practice. As you progress in your practice, three distinct phases of life will all create different cash‐flow management opportunities and challenges that require the establishment of new habits.

Three Phases

Phase I: The Lean Years – Survival

Phase I begins upon completion of medical residency or dental school. At this point, student loans are usually at their peak, and unless a spouse was working or parents were helping financially, credit cards are often part of the equation. Bottom line: Very little cash is set aside in savings and investments.

This is normal. Cash flow was probably very tight prior to graduation. At this point, the goal is not so much to accumulate massive wealth, as it is to begin building solid financial habits that will persist throughout your lifetime.

Phase II: Disposable Income – Success

Phase II begins once the high‐interest consumer debt is finally paid back, and you have had the opportunity to build up some emergency reserves. The point of entry into Phase II is often the most critical phase on the road to wealth for a young family. It is at this crucial juncture that families must decide how to handle their newly acquired cash flow. If this conscious decision is never made, most families generally default to spending every dime of additional income, and do not save anything for the future.

Before reaching Phase II, it may seem absurd that someone could actually spend ten times as much income from one year to the next. However, our experience proves that Solomon’s wisdom is true: Expenses, by default, will always rise to meet income. The goal throughout the Disposable Income Phase is to avoid the “default” experience, and to ensure that cash flow pattern allows for saving a meaningful portion of a now much‐increased income on a regular basis.

Phase III: Meaningful Wealth – Significance

Phase III begins as financially successful physicians reach a net worth of $1 million or more. At this point, the family has the opportunity (and often the responsibility) to move their financial stature from a position of success to a position of true significance.

With good planning, these physicians have the ability to make a meaningful societal impact by leveraging their time, talents, and treasures to the causes they are most passionate about. The financial planning required at this stage of the game becomes more advanced, but it also greatly impacts the bottom line of the family’s net worth.

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